Central Bank Governor says focus is long-term: EPF has invested in sound stocks

Charumini DE SILVA

The Employees Provident Fund (EPF) has invested in fundamentally sound stocks in the stock market with a long-term focus, Central Bank Governor Ajith Nivard Cabraal said.

“When the EPF enters the stock market, it will help to stabilize the market on a long-term basis and that would safeguard the market, to some extent, from speculative actions which are generally prevalent in emerging markets,” he said. “The banking and financial sector is the largest contributor to the Sri Lankan equity market with more than 20 percent of the total market capitalization. This sector has always been performing exceptionally well,” Cabraal said.

That is why the EPF has now decided to invest in banking sector shares to create more wealth for millions of EPF members in the long run. The EPF has all rights to invest in the banking and financial institutions in terms of the EPF Act. A large chunk of EPF investments are in the Government paper and this trend would perhaps continue over the next few years as well. However, if the Government were to reduce its fiscal deficit, over the next few years (as they have announced), there is a strong possibility that the EPF investment options of investing in Government paper could reduce to some extent in the medium to long-term.

He said, interest rates too could decline further and the returns to the members could reduce proportionately, although such returns may be reasonably above the inflation rate. “In that environment, a slight shift towards other instruments which provide higher yields, such as; debentures, mortgage backed securities and selected private equities would be a useful diversification,” the Governor said.

EPF has been carefully investing a small portion of its funds in such instruments in order to provide an edge to its overall returns, and this policy will continue.

“As a prudent investor, our responsibility is to scan the environment and anticipate the impact of various policy measures, both international and local, in the future.

We have to look at these matters with a long-term focus and that is the only way that we can ensure such a prudent and reasonable return,” he said. In the future, we would concentrate more on long-term returns, growth and capital gains, rather than short-terms gains. The way to judge a long- term fund is not to see whether it is making money week by week, but to look at its investment strategy and long-term focus. The Monetary Board has given the broad direction to the investment committee of the EPF that their focus should be based on those parameters and we are satisfied with those broad directions are being followed in the investment decisions that have been taken so far, he said.

The EPF has been providing exceptionally good returns to its members over the past few years and they have done a lot better than what some of the private sector managers of investment funds were able to achieve. At present, EPF has an active membership of 2.1 million as at end June 2010.

source - www.dailynews.lk